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Tennessee Judge Blocks State Enforcement Against Kalshi in Sports Event Contracts Case

Kalshi logo with vibrant digital abstract background of red, orange, and pink lines representing technology and data motion

On February 20, 2026, U.S. District Judge Aleta A. Trauger in Tennessee granted Kalshi a preliminary injunction preventing state officials from enforcing Tennessee’s sports gaming laws against the platform’s sports event contracts while litigation continues. The ruling directly responds to a cease-and-desist letter from Tennessee regulators threatening action under the Tennessee Sports Gaming Act for operating without a state license.

Key Legal Reasoning

Judge Trauger found that Kalshi is likely to succeed on the merits of its argument that its sports event contracts qualify as swaps under the Commodity Exchange Act (CEA), which grants the Commodity Futures Trading Commission (CFTC) exclusive jurisdiction over such instruments. This federal preemption, the court concluded, overrides conflicting state gambling regulations.

The judge accepted Kalshi’s position on two critical points:

  • The “outcome” of a sports game can also constitute an “occurrence” under the statute.
  • Downstream economic consequences (e.g. increased merchandise sales after a team wins) satisfy the CEA’s requirement that swaps be associated with a financial or economic impact.

The court further held that Kalshi cannot comply with both state licensing requirements and CFTC rules simultaneously, creating an irreconcilable conflict that frustrates uniform federal regulation of derivatives markets.

Broader Context and Split Decisions

Kalshi offers regulated binary event contracts on outcomes ranging from Supreme Court decisions and weather events to sports results. Dozens of states have challenged these contracts as unlicensed sports betting.

Court rulings remain inconsistent:

  • Granted injunctions: Tennessee (this case), New Jersey
  • Denied injunctions: Nevada, Maryland
  • Pending motions: Ohio, New York, Connecticut

Appellate litigator Andrew Kim noted on X that Judge Trauger’s ruling departs from Judge Gordon’s decision in Nevada, calling the divergence a sign that these questions are likely headed to the Supreme Court.

CFTC Position and Market Impact

Earlier this week, the CFTC filed an amicus brief in the Ninth Circuit (Crypto.com v. Nevada) asserting its exclusive jurisdiction over prediction markets and event contracts as commodity derivatives.

Kalshi continues to dominate the U.S. prediction market space, processing over $9.5 billion in volume in January 2026 alone (The Block Data Dashboard).

The Tennessee injunction provides temporary relief and strengthens Kalshi’s legal position in other states where similar enforcement actions are pending.

Investor & Platform Takeaways

  • The decision reinforces the argument that federally regulated event contracts may enjoy preemption over state gambling laws.
  • It increases legal uncertainty for states attempting to treat prediction markets as unlicensed sports betting.
  • Kalshi’s market position appears strengthened in the short term, though appeals and conflicting district court rulings could prolong the patchwork of outcomes.

The case remains ongoing, with the preliminary injunction in effect until final resolution or further order of the court.

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